Audit

Describes motivation process for creativity with emphasis on intrinsic motivation by Corey K Katir

Signage, stationary and forms, oh my! Businesses can easily create enough visual material to fill up an ark. Thereas a logo, of course, and everything it gets applied to, such as: brochures, catalogs, websites, print and e-newsletters, Facebook pages, ads, uniforms, vehicle graphics, and more.

When a company is successful, it grows and expands. As it moves from infancy to adulthood, its visual armaments grow as well. One location becomes three, then twenty and so on. Each one brings with it more of everything. More signs. More stationery. More forms. This can avalanche out of control. Hopefully, someone is keeping an eye on things. But, thatas often not quite the case.

Enter the design audit. aAudita might be a word that puts the fear of the taxman into you, but donat sweat it. This kind of audit is a good thing. And it’s an opportunity for freelance designers to expand their service offering.

What is a Design Audit?

A design audit is nothing more than a peek and perusal of all the visual materials used by a company, along with its core message to its customers, clients, vendors and other audiences. Okay, it should be a bit more than a peek and perusal; thatas what this article is all about.

A design audit is an analysis of all the visual elements used by a company. Beyond its visuals, also central to an audit is the companyas core message, sometimes called a slogan, value or branding statement. You can think of a design audit as something like psychotherapy a a type of headshrinking, but for a business. Without a process in place to monitor a business audiences’ touch points they run the very real risk of projecting an unfocused personality.

A design audit reviews visual style and message with a concern for uniformity.

A company’s visuals are indispensable. They play a key part in how a company’s audience and market view it’s brand. The public sees the face of the company as the logo and the clothes as its visual style. Quality customer service, ethical decisions, and other business issues work together with visual style to create a corporate identity.

While big businesses need design audits, so do small business. Successful companies, of any size, need to strategically align their business culture with their brand. It’s essential that companies manage their materials and message, so they control their identity, which is crucial in a competitive marketplace.

A design audit reviews visual style and message with a concern for uniformity. What does the overall identity look like? Are the design, color palette and typography consistent throughout all materials? What do the visuals communicate and are they reliably on target? Is the level of design and production quality where it should be? Does everything make sense or is it jumbled and confusing?

When a company’s brand fragments, there is an opportunity here for freelance designers to provide a much needed service. Let’s look deeper into this problem.

So, What is the Problem?

As companies expand, they often find the need to have materials created and printed in remote locations, rather than its main location. The next thing you know, a company has 15 or 20 versions of its letterhead and business card. It’s similar for other design elements. For the owner of a small business a mistake often occurs, though at a smaller scale. They may have business cards reprinted with the wrong font or not carefully apply colors consistently across their marketing materials.

Is this a problem? Definitely. When visual style is lost, so is branding, positioning, as well as mindshare and sales. Clients will get nervous if things keep changing. As this problem slides downward, they may not recognize the business as its brand cohesion slips.

An effective brand needs a consistent visual style. When you go into a Starbucks in Seattle, it’s looks the same as one in New York. The colors are consistent and the typestyles are the same (within the confines of its, signage, menus, etc). Thatas comforting to people.

Research suggests that we humans communicate very little by spoken word — about ten percent. Most communication is made through body language, which accounts for roughly sixty percent. The rest is made up of our posture, clothing and such. For a company, itas the same. What they say with words can often amount to little. What usually sticks in the customersa minds is its logo, colors, sounds and sometimes even aromas.

If one part of the company has one message, while another is communicating something else, you’re left with discord. It’s the same if visuals don’t match the message, or if visuals aren’t consistent. Companies create anxiety in their target market when they stray from their message and drift from their dependable visual style.

Design Audit Deliverables

How does a design audit begin? It’s starts by gathering all the visual and brand elements a company creates. Then the designer, writer, or marketing consultant (often all three) study these and an analysis report is created.

The reports, along with the materials, are then presented to the clientas management. Many businesses are shocked when they see the visual elements together, as one fragmented, Frankenstein-like monster.

The point is to document it all and never, ever, under any circumstances, stray from it.

After all these inconsistencies are out in the open, it’s time to structure a plan to ensure that the company, its visuals and its message are presented in harmony.

You should place this harmonious style plan into a Standards Manual. This document shows how a company’s logo is designed and how to use it in different contexts. The manual documents the brand’s color system with exact RGB and Pantone colors. It gives specifics about the typefaces to use and often much more.

A Standards Manual can be just a few of pages for a small company or a large volume for a multinational. The size of the document depends on how large the company is and the number of variations in the style application involved. And frankly, it can depend a lot on money. A large company will need to show literature; stationery; website; Facebook; signage applications; uniforms; vehicle applications and several others. A small business may only need to show its logo, colors, stationary and a few forms. The point is to document it all and never, ever, under any circumstances, stray from it.

And, yes, when logo redesign time rolls around the process starts all over again.

Design Audit Opportunity

So, now that we know about design audits, whatas the benefit for the freelancer? It gives you one more service, a valuable one at that, to sell or use as a promotional tool. Many designers, both graphic and web, offer audits as a stand-alone service. As a matter of fact, larger firms and consultancies provide them as stand-alones, can charge hundreds of thousands of dollars, and take months to conduct them. Implementing changes, developing a Standards Manual and fixing what was found are usually extra. Do I hear a acha-ching”?

The freelancer who offers design or communication materials audits can quickly move up the ranks from being a provider of hands on a keyboard to that of a highly valued consultant a- a partner, in many ways, with their client. That is, naturally, if they do them well and provide sensible recommendations.

As a freelancer, you might not realistically land a multinational in need of an audit to the tune of a half million or more. But, one never knows. Freelance teams can be as effective, if not more so, than an expensive — and sometimes sluggish — consultancy group. Nonetheless, odds are, you can find a few small and medium-sized businesses whose visual identity and message are in chaos. It just takes a bit of looking around.

If youare a designer, you might consider teaming up with a writer and vice versa. The designer handles the visuals. The writer handles the words. Both work together to craft a sound strategy and set of recommendations for the client. You both make money and the client saves itself from potentially losing sales and share of mind. Plus, when itas all over and done well, the client will likely enjoy a stronger market position.

Another approach is to use a limited audit as a complimentary promotional tool. Sure, youall need to invest some time, but you also would for any other marketing tool. For example, how much time is social media sucking up? Or, designing that promo brochure that never seems quite finished? An audit for a small company of, say, fewer than ten employees, could probably be knocked out in an hour or two, once you have the process down.

At the complete of a design audit, your client will have a set of standards in hand, they will be armed with a consistent identity, and be able to meet the market with a stronger brand. You’ll be in an ideal position to work with them. Having a strong standards manual will save you time and aggravation when you prepare additional designs for that client in the future.

Graphic credit: Some rights reserved by Reclameworks.

By Christopher E. Hale

Contractors pursuing claims against the government under the Contract Disputes Act (“CDA”) can often fall victim to the jurisdictional pitfalls of the Act from the very start of the claims process, i.e., with the claim itself. After a contracting officer denies a claim under the CDA, a contractor can appeal the decision to either a Board of Contracts Appeals or the U.S. Court of Federal Claims. However, there is no shortage of cases in which such appeals are dismissed for lack of jurisdiction because the original requests for payment did not constitute “claims” under the CDA.

One recent illustration of this problem involved the distinction between routine and non-routine requests for payment, as addressed by a recent split-panel decision of the United States Court of Appeals for the Federal Circuit, Parsons Global Services, Inc. v. Secretary of the Army, No. 2011-1201 (Fed. Cir. Apr. 20, 2012).

The case centered on the termination for convenience of several task orders under an indefinite-delivery-indefinite quantity contract awarded by the Army to Parsons for design-build work in Iraq. Parsons had entered into a subcontract with Odell International, Inc. (“Odell”) to construct health care facilities and deliver medical equipment in Iraq pursuant to the prime contract.

Shortly before the task orders were terminated for convenience by the Government, the Defense Contract Audit Agency (“DCAA”) determined that Odell had been mistakenly billing Parsons using a lower overhead rate than was specified in the subcontract. Odell then invoiced Parsons for the difference, but Parsons refused to pay the invoice and submitted a termination settlement proposal to the Termination Contracting Officer (“TCO”) without including the disputed Odell costs. Two years later, as part of settlement of the prime contract, DCAA audited Parsons’ billed costs, including Odell’s costs, and determined that Odell’s costs at the higher overhead rate were supported and appropriate. Odell submitted a new invoice for the difference, and Parsons submitted three payment requests for the additional Odell costs to be paid directly by government. The TCO declined to act on the requests to settle directly with Odell. Parsons then submitted a sponsored “Certified Claim for Payment” under the CDA on behalf of Odell to the Procurement Contracting Officer (“PCO”), and appealed the PCO’s denial of the claim to the Armed Services Board of Contract Appeals (“ASBCA”).

The Government moved to dismiss for lack of jurisdiction, arguing that Parsons’ routine request for payment to the PCO did not amount to a claim under the CDA. Parsons countered that, because its requests for payment occurred two years after the termination of the task orders and thus could not be subject to routine invoicing and termination procedures, the request was non-routine and sufficient by itself to constitute a claim. The ASBCA sided with the Government and dismissed the claim.

On appeal, the Federal Circuit affirmed the ASBCA’s decision, holding that Parsons’ request for payment was not a claim as defined in FAR 2.101. Under the FAR, demands for payment can be classified as either “routine” or “non-routine.” If the request is “non-routine,” then it constitutes a claim under the CDA so long as “it be (1) a written demand, (2) seeking, as a matter of right, (3) the payment of money in a sum certain.” However, if the request is “routine,” a pre-existing dispute is necessary for it to constitute a claim under the CDA.

As the Federal Circuit detailed, non-routine requests for payment typically spring from additional or unforeseen costs not covered by the contract:

Such requests include requests for equitable adjustments for costs incurred from “government modification of the contract, differing site conditions, defective or late-delivered government property or issuance of a stop work order” and other government-ordered changes; for damages resulting from the government’s termination for convenience and termination settlement proposals that have reached an impasse; for compensation for additional work not contemplated by the contract but demanded by the government; for the return of contractor property in the government’s possession; and for damages stemming from the government’s breach of contract or cardinal change to the contract.

In contrast, according to the Federal Circuit, the request for payment of Odell’s costs made to the PCO was routine because the costs were explicitly covered by the contract and, but for the billing error, would have been subject to routine invoicing during contract performance. Furthermore, the routine request was not subject to a pre-existing dispute because the PCO, the appropriate official to evaluate the request, never received a proper request for payment prior to the improper “Certified Claim for Payment.”

In a somewhat scathing dissent, Judge Newman posited that major billing errors, such as Odell’s, are neither foreseen nor intended and cannot be characterized as routine. However, stepping away from the esoteric classification of routine and non-routine requests for payment, Judge Newman threw the facts of the case – in which “a simple correction of a billing error has morphed into a nearly four-year litigation, with no end in sight” – into sharp relief:

The agency’s refusal to pay Parson’s claim, having acknowledged the obligation and having audited it through its own Audit Agency, is contrary to the guiding principle that “The Federal Acquisition System will [c]onduct business with integrity, fairness, and openness.” . . . . This lengthy litigation of a conceded governmental obligation is an embarrassment.

To avoid being caught in such an “embarrassment,” contractors should take care when submitting claims pursuant to the CDA to ensure that a request for payment that could be classified as routine is subject to a pre-existing dispute. Otherwise, the contractor might find years later that its claims process was flawed from the start and must begin anew – assuming the statute of limitations has not already run its course.

By David S. Gallacher and Kerry O’Neill

Last April, we wrote about proposed changes to Department of Defense (“DoD”) reporting requirements for independent research and development (“IR&D”), raising concerns about how the proposed change would tie recoverability of IR&D costs to new reporting and disclosure requirements. Recently, Defense Federal Acquisition Regulation Supplement (“DFARS”) 231.205-18(c) was finalized, with changes. See 77 Fed. Reg. 4632 (Jan. 30, 2012). This final rule is a mixed bag that got some things right, but also leaves some of the most serious issues unresolved.

First – three things that DoD got right.

1. Elimination of the $50,000 Threshold. The proposed rule required IR&D reports from all major contractors generating more than $50,000 annually in IR&D costs. However, the regulations define “major contractors” as contractors whose covered segments are allocated more than $11,000,000 in total IR&D costs during the preceding fiscal year. The two different dollar thresholds created confusion as to who should be reporting and what projects should be included in these reports. The final rule removed the redundant $50,000 threshold, clarifying that all “major contractors” with more than $11,000,000 in allocable IR&D costs must submit reports on all of their IR&D projects, regardless of the dollar value of a specific project. Other non-major contractors, the final rule noted, are welcome to submit reports voluntarily.
2. Clarification Regarding Classified IR&D Projects. The proposed rule would have established a broad-ranging disclosure requirement for all IR&D projects, without regard to whether a project was classified. The final rule clarified that only unclassified projects should be submitted through the DoD’s Defense Technical Information Center (“DTIC”) website (www.dtic.mil/ird/dticdb/index.html).
3. Reiterating that Submissions Will Be Protected as Proprietary. The proposed rule required general descriptions of IR&D projects, with no guidance on what should be submitted and no assurances of how the information would be handled within the government. The final rule made clear that information reported through the DTIC website would be considered proprietary under the Freedom of Information Act (“FOIA”), 5 U.S.C. § 552(b)(4), and that it would not be subject to public disclosure. Furthermore, DoD clarified that companies are in control of the level of specificity to be included in the reports.

Whether requiring these reports is a good idea is now a moot point – the rule is final and all major contractors are required to report so that the DoD can regain greater visibility into IR&D funding and better evaluate whether the funded projects have a discernible technological purpose that benefits DoD. But, beyond the increased audit scrutiny, we think that this new reporting requirement reflects a continuing shift in DoD’s overall policy approach to IR&D, with DoD hungry for more rights and more visibility into research and development projects that, by regulation, must remain independent. Given the high value that is inevitably associated with this incessant search for more, we are quite sure that companies would rest easier if their concerns were actually addressed in the final rule in a substantive manner.

By John W. Chierichella and Alexander W. Major

Under FAR 42.709-1, penalties for expressly unallowable costs are to be waived when the expressly “unallowable costs under this proposal” are less than $10,000. Although there are other bases for the waiver of the penalties, those other bases are discretionary. The $10,000 exclusion is mandatory.

In Thomas Assoc., Inc., ASBCA No. 57126, May 17, 2011, 11-1 BCA ¶ 34,764, the ASBCA considered an appeal from the imposition of penalties for five expressly unallowable “cost items”. One item involved costs of $44,959, which was in excess of the $10,000 exclusion and thus ineligible for the mandatory waiver. Each of the other four cost items involved costs of less than $10,000. Although the total expressly unallowable costs included in the indirect cost proposal exceeded $10,000, the Board considered the four cost items individually and held that the Contracting Officer was required to waive the penalty for each of the expressly unallowable cost items that was less than $10,000.

Not for long.

The Government moved for reconsideration of the Board’s decision and introduced on reconsideration, for the first time, the FAR/DFARS case file relating to the drafting of FAR 42.709-5. Relying on that newly adduced administrative history, to which the Appellant did not object, the Board concluded that waiver applies only when the expressly unallowable costs, in the aggregate, are less than $10,000. Thomas Assoc., Inc., ASBCA No. 57126, Oct 18, 2011, 11-2 BCA ¶ 34,858. The Board was persuaded by the drafting history, which specifically addressed the issue and added to the final rule parenthetical language linking the waiver to expressly unallowable costs of $10,000 or less allocable to the contracts in question. The Board noted that FAR 42.709-1, which establishes the basic penalty rule, speaks in the singular to any “indirect cost” that is expressly unallowable. By contrast, FAR 42.709-5, which establishes the waiver, speaks in the plural, dispensing with the penalty when “the amount of the unallowable costs under the proposal . . . is $10,000 or less.”

The result of the Board’s decision on reconsideration is obvious – “little things mean a lot.” A few relatively minor inadvertent errors can and will trigger penalties. Moreover, the penalties attach to the submission of the final indirect cost proposal unless the proposal is withdrawn before the initiation of the proposal audit, even if Uncle Sam never pays the costs. Contractors apparently will no longer be able to count on a “free pass” for individual cost errors at or below the $10,000 threshold if, in the aggregate, they exceed that threshold. The cost of minor mistakes just went up. Caveat venditor.

John Edwards was probably singing the Boomtown Rats, “I don’t like Mondays” to himself yesterday. His bad luck began in the morning when first the Judge got snippy with Abbe Lowell about Lowell deciding to put his expert witness on when she still hasn’t ruled on whether she’ll allow it. ” Come back later in the and we’ll discuss it.”

Lowell calls his next witness, Lora Haggard, former CFO of his John Edwards for President Campaign. More bad news for John Edwards. The Judge, outside the presence of the jury severely curtailed what she could say. She was not allowed to tell the jury that an FEC audit completed just last month, which knew all about the Indictment and monies from Fred Baron and Bunny Mellon, approved without objection his campaign’s financial reports that did not include the Baron/Mellon funds,. [More...]

What’s a lawyer to do? Send out the minions. The minions produced, big time. They located the tape of the FEC open hearing on the audit (which is on the FEC website), and late last night filed a motion to admit it. You can read it here.

What excuse will the trial court use to block it? I can’t think of a single valid reason. But don’t listen to me, here’s what Team Edwards had to say in their motion.

The tape directly refutes the false statement charge in Count 6 of the Indictment.

Mr. Edwards is charged with causing false reports of a “material fact” to the FEC by not reporting the payments by Mr. Baron and Ms. Mellon as campaign contributions as part of a trick, scheme or device. Because the FEC is aware of theissue and has explained that the payments would not need to be reported, even if the jury finds that the alleged payments were unlawful campaign contributions, those statements by the FEC are certainly probative as to whether the FEC has been tricked or the failure to report the payments as contributions is “material.”

On July 21, 2011 the commissioners of the FEC reviewed the “Proposed Audit Division Recommendation Memorandum on John Edwards for President, Inc.” in open session.

The FEC referenced the Indictment in this case (with Count 6 included), and its relevance to the FEC‘s audit of the campaign …..FEC Commissioner Donald McGahn raised the issue of whether the record should remain open, in the event the jury finds that the payments should have been reported as contributions. But he explained there is no reason to leave the record open in this case because, no matter what the jury concludes, the FEC concludes those payments would not be reportable as campaign contributions.

Commissioner McGahn stated “ I can say…in my view [the monies paid by Mellon and Baron are] not reportable.” No member of the Commission objected to Commissioner McGahn’s assessment, and the Commission voted to adopt the Audit Division’s recommendation to close the record unanimously.

Pretty good for Edwards, don’t you think? But Team Edwards isn’t taking any chances with the judge who seems all too inclined to rule for the Government. On the relevancy of the tape:

The tape is relevant because it credits Mr. Edwards’ defense that the FEC was not tricked with respect to the payments by Mr. Baron or Ms. Mellon and that the FEC does not find the omission of the payments “material” because the FEC does not believe these payments had to be reported, or at least it was reasonable for them not to be. …What better evidence is there that there is no concealment of a material fact than that the agency accused of being the victim of the concealment is aware of the nondisclosure and explains that it would not want the payments reported as contributions? The fact that the FEC would not require the disclosure of the payments as contributions demonstrates that the FEC does not consider the omission material. In conjunction with the testimony of Lora Haggard, this completes the thought.

Team Edwards cites an 11th Circuit case where a candidate received a $1,500 payment that was used to pay his living expenses.. He did not report the payment as income, and was prosecuted for filing a false tax return. The defendant claimed the payment was a gift and not taxable income. The Government said it was a campaign contribution that had to be reported. The candidate sought to introduce expert testimony at trial that it was a gift. The government claimed that the payment was a campaign contribution, rather than a gift, and that converting it to to cover living expenses required it to be treated as income.

The defendant sought to introduce expert testimony to explain that the candidate’s interpretation of his legal obligation (i.e., that the payment was not a campaign contribution) was well-founded and reasonable. The trial court refused to allow it. He was convicted. The appeals court reversed.

The Eleventh Circuit explained that denial of this evidence was prejudicial because it is “highly probative for the defense to show that the defendant’s belief — whether or not it was mistaken — was reasonable; evidence of the belief’s reasonableness tends to negate a finding of willfulness and to support a finding that the defendant’s belief was held in good faith.” Looking back at the decision, the Eleventh Circuit explained that, without such evidence, “it would be difficult if not impossible for a defendant to introduce evidence specifically about his mental state. Consequently, he had to focus on providing circumstantial evidence concerning collateral matters, such as the reasonableness of his beliefs, from which the jury could infer what his mental state was.

”

Team Edwards maintains that because a critical issue in Count 6 is one of specific intent, the tape is relevant evidence. Anticipating objections from the Government it goes through every possible evidentiary rule to show the tape is admissible. I’ve listed a few below:

The Tape is self authenticating’

There can be no question as to the authenticity of this audio tape of an open session by the FEC, which was taped by the FEC and is maintained on the FEC‘s own website. See here. The fact that the FEC itself acknowledges that this is a recording of its official proceedings makes it a self- authenticated recording under Federal Rule of Evidence 902(4), 902(8) and 902(11). Because the FEC and the tape itself identify the speaker as Commissioner McGahn, his statements also are authenticated under Rule 901(b)(5) and 901(b)(7).

Hearsay: No Problem:

Because the FEC records its open session meetings and makes them publicly available, the tape is not hearsay under Federal Rule of Evidence 803(6) (Records of Regularly Conducted Activity).

Rule 803(8)

Similarly, the tape is admissible under Rule 803(8) because Commissioner McGahn’s statement reflects the FEC‘s factual finding that there would be no reason to delay the audit to await an amended report from the campaign following the jury’s verdict in this case.

Rule 801(d)(2)

The statement also is admissible as an admission by a party-opponent under Rule 801(d)(2). “[T]he Federal Rules clearly contemplate that the federal government is a party-opponent for the defendant in criminal cases.”

….Where a defendant alleges that the government has taken inconsistent positions, “the inconsistencies of the government’s positions . . . should [be] made known to the jury.” In addition, under well-settled application of Federal Rule of Evidence 803(8), the FEC is the agency to be in charge of this issue, it needs not be a formal finding of that agency but a statement will suffice, and any official of the public agency can speak and that statement is admissible.

Our Supreme Court says “As a constitutional matter, a defendant’s right to present a defense . . . ‘includes, at a minimum, . . . the right to put before a jury evidence that might influence the determination of guilt.’

Such an “[e]rror cannot be harmless where it prevents the defendant from providing an evidentiary basis for his defense. ” The Fourth Circuit allows evidence that will support or undermine the believability or reasonableness of a defendant’s claim of innocent intent.

Monday afternoon, after a hearing outside the presence of the jury at which his proposed election law expert, former FEC Commissioner Scott Thomas testified, the Judge ruled Thomas can’t give his expert opinion that the funds were not campaign contributions.

Judge Catherine C. Eagles, however, ruled against Mr. Edwards’s lawyers and said Mr. Thomas could not offer the United States District Court jury his opinion on the legality of the contributions. Judge Eagles said it was her role — not a witness’s — to explain the law to the jurors and let them decide if Mr. Edwards had violated it.“It doesn’t seem to me that the jury needs help,” she said. “It just doesn’t seem that complicated to me.”

I’d like to know how hearsay testimony that Elizabeth Edwards ripped off her shirt and bra to scream at her husband, or that Rielle Hunter called her spiritual adviser when a Reuben sandwich came with the wrong dressing, is relevant to Edwards’ intent in accepting campaign contributions, but the testimony of a former FEC Commissioner and evidence of an FEC audit negating the Government’s theory that he knew the Mellon/Baron funds were campaign contributions is not relevant? The public wants to understand too, and I don’t think quoting Rule 702 or Rule 904 suffices.

Why isn’t it more important to allow the defendant to show, in the words of the Supreme Court, that this prosecution violates the due process principles “that no man shall be held criminally responsible for conduct which he could not reasonably understand to be proscribed” and

“[A] statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application violates the first essential of due process of law.”

There are no cases to support the Government’s novel theory that third-party spending on a candidate’s “paramour” could result in a campaign finance violation. As Team Edwards argued in its Motion to Dismiss for Failure to State a Crime:

The fact that former Chairmen of the FEC find the government’s suggestion of criminal liability flawed and without precedent makes plain that Mr. Edwards could not have been on notice that his conduct “knowingly and willfully” violated the campaign finance laws.

Our Supreme Court has said:

“[D]ue process bars courts from applying a novel construction of a criminal statute to conduct that neither the statute nor any prior judicial decision has fairly disclosed to be within its scope.”

Even in the 4th Circuit where Edwards is being tried, courts have found campaign finance regulation is ‘baffling and conflicted.” An expert would illuminate, not obfuscate, the meaning and application of the law.

You don’t need a weatherman to know which way the wind blows at this trial. The Judge’s statement Monday that she thought the expert’s testimony would differ from her final instructions, is practically a declaration that she’s going with the Government’s highly disputed and unprecedented interpretation:

The judge agreed with Harbach, saying that the case “doesn’t seem that complicated to me” and worrying that Thomas’ testimony would conflict with her jury instructions at the end of the case. “He made a pretty good closing argument for the defense,” she said after hearing Thomas testify.

In an area of complex law the average juror would have difficulty understanding, the Judge, instead of allowing the jury to hear knowledgeable expert testimony about what constitutes and does not constitute a campaign contribution, so it can decide for itself whether the monies at issue are a campaign contribution, will force the jury to accept the Government’s definition, even though no charges have ever been brought and no court has ever accepted such a definition, and its definition is contrary to both FEC findings in this very case and prior FEC opinions and judicial decisions.

Here’s what Edwards’ experts, Former Commissioners Thomas and Robert Lenhard, opined in an affidavit to the Court:

[U]nder the law as developed by the United States courts and the Federal Election Commission, these payments would not be considered to be either campaign contributions or campaign expenditures within the meaning of the campaign finance laws …. [T]he Federal Election Commission, if asked, would conclude that these payments did not constitute a violation of the law, even as a civil matter; and …that the facts do not make out a knowing and willful violation of the campaign finance laws warranting criminal prosecution. . . . Moreover, in 2007 and 2008, a candidate would not have been on notice that the payments by Mrs. Mellon and Mr. Baron to Ms. Hunter would violate the campaign finance laws. A criminal prosecution of a candidate on these facts would be outside anything we would expect after decades of experience with the campaign finance laws.

Courts have been clear the Government doesn’t get to decide what is a crime. That’s Congress’ job. From Judge Kosynski’s concurring opinion in United States v. Goyal, 629 F.3d 912, 922 (9th Cir. 2010):

“This is just one of a string of recent cases in which courts have found that federal prosecutors overreached by trying to stretch criminal law beyond its proper bounds. This is not the way criminal law is supposed to work. Civil law often covers conduct that falls in a gray area of arguable legality. But criminal law should clearly separate conduct that is criminal from conduct that is legal.”

***********

Cate Edwards is expected to testify for her father today. Will the Government object to her telling the jury what she has known and heard her father to say? ? Will the judge restrict her testimony like she did that of his experts? Or will she admit Cate’s testimony the same way she admitted the irrelevant trash-talk testimony of the Government’s witnesses?

When this trial is over, if Edwards is convicted, millions will believe the real reason he is being sent to the gallows has nothing to do with campaign contributions and everything to do with his having a child out of wedlock with a woman his friends and staffers found “kooky,” while his demanding and unhappy wife was dying of cancer.

Or, they may believe that he’s being punished for what in the eyes of the Government is apparently an even greater sin — he had the gall to take the case to trial instead of kow-towing to the Government’s demand he lie down and plead guilty to something he had no reason to believe he was guilty of.

Only if the trial is fair, can the public trust in the integrity of an ensuing guilty verdict. I don’t see how anyone (other than a prosecutor or Republican) will have faith in the integrity of a guilty verdict in this case, should that occur.

If John Edwards is convicted, saying he’ll win on appeal is little consolation. His life, already a mockery by the public shaming he was subjected to in this trial, will have been devastated.

When you break the law, the Government has the right to punish you. It does not have the right to destroy you. And if you are found not guilty, the Government should be obligated to help you restore your life.

Today, the Federal Securities Law Blog takes a look back at the last 30 days in the federal securities world in a regular feature which appears on approximately the 15th of each month. The last month saw our Blog turn five years old, but more importantly, the SEC continued to provide guidance relating to the Jumpstart Our Business Startups Act (“JOBS Act”), and there were a host of issues in insider trading cases and cases involving companies in China. These and other matters from the last month are discussed in greater detail after the jump.

The JOBS Act.

As discussed last month, on April 5, 2012, President Obama signed into law the JOBS Act. On April 16, 2012, the SEC Division of Corporation Finance issued additional Frequently Asked Questions to provide guidance on the implementation and application of the Act, addressing questions of general applicability under Title I of the JOBS Act (as discussed here). Title I provides scaled disclosure provisions for emerging growth companies and allows emerging growth companies to use test-the-waters communications with Qualified Institutional Buyers and institutional accredited investors. CorpFin supplemented that guidance on May 3, 2012 (as discussed here). The FAQs clarify how an issuer can qualify as an emerging growth company, applicable dates for qualification and registration, and various reporting and disclosure requirements.

Information on EDGAR.

As discussed here, the Commission announced that beginning on April 19, 2012, the SEC staff will begin to republish Commission orders pursuant to Exchange Act Section 12(j) revoking a company’s Exchange Act registration and Commission stop orders pursuant to § 8 of the 1933 Act on EDGAR. Although these orders are currently posted on the SEC’s website as administrative orders, they have not been posted on EDGAR. The SEC staff will begin with the most recently issued orders and go backwards through 2004. New orders will be published on EDGAR when issued going forward.

Commission Improvements in Economic Analysis in Rulemaking.

On Tuesday, April 17, 2012, SEC Chairman Mary Schapiro testified before the House Subcommittee on TARP, Financial Services and Bailouts about the steps the SEC has taken and is taking to strengthen our economic analyses in the rulemaking process. Chairman Schapiro acknowledged that “economic analysis is a critical element of the SEC’s rulemaking obligation,” and that “the unprecedented rulemaking burden generated by passage of the Dodd-Frank Act has tested the resources and analytical capabilities of the agency.” However, she explained, the Commission has “learned a great deal and our rulemaking processes have continued to evolve.” As discussed here, she told the Subcommittee that the SEC’s “new guidance reflects many of the current best practices, which the agency will refine in the future as necessary to ensure high quality economic analysis in its rulemaking.”

Insider Trading Issues.

News in the last thirty days provided some excellent insight into the SEC’s efforts to combat insider trading. Devin Leonard’s fine profile in BusinessWeek of Sanjay Wadhwa, a deputy chief of the SEC’s market abuse group, in took a close look at the insider trading investigation of Raj Rajaratnam (and the many leads that investigation has yielded) and was instructive in highlighting how the SEC overcomes disadvantages and what it has done to improve its investigative efforts in recent years. The article, discussed here, focused on the investigation into the Galleon Group and early key discoveries such as the remarkably similar trading by Mr. Rajaratnam and others and his instant messages with Roomy Khan (a witness who ultimately cooperated with prosecutors). As the article points out, the Galleon investigation has led to 56 arrests and 48 convictions, including the conviction of Mr. Rajaratnam, his subsequent sentencing to 11 years in prison and the SEC’s civil judgment against him for over $92 million. For those who follow matters investigated and litigated by the SEC, the BusinessWeek article provides a rare insight into how the SEC performs those tasks and what changes have occurred in their methodology in recent times.

The investigation which ensnared Mr. Rajaratnam continues and the Commission received a positive result on a procedural issues in its litigation against him and Rajat Gupta. Judge Jed Rakoff denied a motion to compel by the two defendants, who were seeking an order that the SEC produce documents concerning settlement negotiations between the Commission and cooperating witnesses. As discussed here, Judge Rakoff rejected the defendants’ argument that the information from the negotiations could be used to prove bias, stating that “[t]he best evidence of bias in a cooperator’s testimony comes from the actual agreement he struck with the SEC, not from his lawyer’s attempt to get him a good deal.”

Another positive story arising from insider trading investigations was the May 3, 2012 announcement from DOJ that it “has returned approximately $44 million to victims of [the] securities fraud scheme” involving of Joseph Nacchio, the former CEO of Qwest Communications International Inc. Following a trial, a jury convicted Mr. Nacchio of 19 counts of insider trading on April 19, 2007 based on events which took place between 1999 and 2002. As discussed here, the long process of litigation in the District Court and the Appellate Court meant that those who invested in Qwest waited ten years to see any recovery (even though Mr. Nacchio paid the forfeiture amount in 2007). However, ultimately $44 million in forfeited funds is “being returned to 112,210 victims who incurred losses on Qwest securities purchased during the fraud scheme.” The distribution of funds to victims was authorized and overseen by the Department of Justice’s Victim Asset Recovery Program in the Criminal Division’s Asset Forfeiture and Money Laundering Section.

The SEC also achieved success in a pair of cases discussed here involving families that engaged in insider trading. In both cases, the insider and the tippees settled with the Commission, paying far more than the profit they earned. In one case, the SEC filed a case against Mohammed Mark Amin, a Hollywood movie producer (“the producer or executive producer for more than 75 Hollywood movies including Frida, Eve’s Bayou, and four movies in the Leprechaun series,” according to the Commission) and his brother, cousin, and three other friends and business partners for insider trading in the shares of DuPont Fabros Technology Inc., a company in which Mr. Amin served on the board of directors. Those who traded earned approximately $618,000, but the six defendants settled by paying nearly $2 million. The same week, the Commission filed a case against Angela Milliard, a former paralegal at Semitool Inc., a semiconductor company in Montana, and her father for trading on inside information about the 2009 acquisition of the company. The daughter and father (who earned $67,000) agreed to settle the SEC’s case by paying more than $175,000.

Whistleblower Unmasked.

An April 25, 2012 article by Scott Patterson and Jenny Strasburg in the Wall Street Journal revealed that, during an investigation of Pipeline Trading Systems LLC, an SEC attorney showed a witness a notebook which included handwritten notes from a whistleblower, and the witness recognized the handwriting and was able to tell his employers who the whistleblower was. As discussed here, the Whistleblower spoke to the Journal and agreed to be identified (and provided some insight on how he was treated both before and after he blew the whistle on Pipeline’s activities). The Journal also published a letter from a letter from George S. Canellos, the Director of the SEC’s New York regional office, which stated that the SEC did not expose the whistleblower and stated that the agency’s use of notebooks with his handwriting was not “inadvertent” and not a “gaffe.”

Chinese Entities.

The last thirty days saw developments in several cases involving Chinese companies, including a case filed yesterday against China Natural Gas, Inc. and its former CEO Qinan Ji for having the corporation make loans to Mr. Ji’s family and failing to disclose the transactions.

In another case against a Chinese company discussed here, on April 23, 2012, the SEC filed a case against SinoTech Energy Limited, an oil field services company, with intentionally misleading investors about the value of its assets and its use of $120 million in IPO proceeds. The SEC also charged CEO Guoqiang Xin and former CFO Boxun Zhang for their involvement in the fraud. The Complaint, filed in federal court in Louisiana, alleges that the company’s IPO registration statement misled investors about the acquisition and value of a key asset lateral hydraulic drilling units (“LHD Units”) that are central to its business. In addition, the SEC charged Qingzeng Liu, SinoTech’s chairman and controlling shareholder, with misappropriating at least $40 million of SinoTech’s cash between June, 2011 and August 2011. The SEC’s complaint seeks permanent injunctive relief against all defendants, and disgorgement of ill-gotten gains by SinoTech and Mr. Liu, as well as civil penalties against the three individuals. The Commission also director-and-officer bars against each of the individual defendants.

As discussed here, on April 25, 2012, DOJ announced that Garth Peterson, a former managing director for Morgan Stanley’s real estate business in China, pled guilty in federal court in Brooklyn, New York for participating in a conspiracy to evade the internal accounting controls which the company was required to maintain under the FCPA. The SEC also announced that it brought and settled a case against Mr. Peterson. However, in announcing the case against Mr. Peterson, DOJ stated that it was not bringing any enforcement action against Morgan Stanley related to this conduct (noting that “Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials”).

On May 9, 2012, the SEC announced that it has filed an Administrative Proceeding against Deloitte Touche Tohmatsu CPA Ltd. (“D&T Shanghai”) for its refusal to provide the agency with audit work papers in connection with the Commission’s investigation of the firm’s client for alleged fraud. The Administrative Proceeding was filed while the Commission is in the midst of a subpoena enforcement action against the same accounting firm, that is scheduled to be heard in federal court in early June. The new matter is latest proceeding in the dispute over whether the SEC can compel the Chinese accounting firm to respond to its subpoena – the penalty which D&T Shanghai could face for its failure to comply is censure or being denied the ability to appear before the Commission.

Class Action Settlement.

In the In re: Lehman Bros. Sec. and ERISA Litig., Judge Lewis Kaplan issued a May 3, 2012 Memorandum and Order directing certain defendants (five officers, who had already allowed a retired Judge specially retained to assist in the parties’ discussions to review information regarding their assets), to provide that same financial information to the Court for an in camera review. As discussed here, Judge Kaplan will review that information in order to make a determination regarding the fairness a $90 million settlement (which was to be paid by insurance coverage) between class action plaintiffs and the directors and officers.

On May 9, 2012, the SEC announced that it has filed an Administrative Proceeding against Deloitte Touche Tohmatsu CPA Ltd. (“D&T Shanghai”) for its refusal to provide the agency with audit work papers in connection with the Commission’s investigation of the accounting firm’s client for alleged accounting fraud. The Administrative Proceeding was filed while the Commission is in the midst of a subpoena enforcement action against the same accounting firm, that is scheduled to be heard in federal court in early June. The new matter is latest proceeding in the dispute over whether the SEC can compel the Chinese accounting firm to respond to its subpoena – the penalty which D&T Shanghai could face for its failure to comply is censure or being denied the ability to appear before the Commission.

In May 2011, the SEC commenced an investigation into Longtop Financial Technologies Limited (“Longtop”), a Cayman Islands corporation whose ADRs are traded on the New York Stock Exchange. Longtop’s principal offices are located in China, where D&T Shanghai served as its auditors until the accounting firm resigned in May 2011 after, according to the SEC, “discovering numerous financial improprieties” at Longtop.

As part of its investigation of Longtop, the SEC subpoenaed documents from D&T Shanghai, and the discussions regarding that subpoena boiled over into litigation.

• On May 27, 2011, the SEC served its subpoena on D&T Shanghai’s former U.S. counsel (who had represented that he had authority to accept service). The accounting firm acknowledged that it possessed “vast amounts of responsive documents,” but refused to produce them to the Commission.

• On July 8, 2011, new counsel for D&T Shanghai wrote to the SEC and explained that the firm was refusing to comply with the subpoena because, among other things: (1) it could not be compelled to produce documents that predated the July 21, 2010 passage of the Dodd-Frank Act; and (2) the production of any documents may subject the firm to sanctions under Chinese law.

• On September 8, 2011, the SEC filed a Motion for an Order to Show Cause in Federal Court in D.C., arguing, among other things, that the “vague assertions of possible conflicts with a foreign law” did not justify D&T Shanghai’s non-compliance with the subpoena.

• On October 7, 2011, Magistrate Judge Deborah Robinson issued a Minute Order requiring the SEC to submit a brief “to address (1) the authority for the proposition that the court can require Respondent to appear to show cause where Respondent has not been served and has not appeared, and (2) the authority for the request that service be permitted pursuant to Rule 4(f)(3) of the Federal Rules of Civil Procedure [service by other means] rather than Rule 4(f)(1) [service under the Hague Convention on Service Abroad of Judicial and Extrajudicial Documents or some other internationally agreed-upon method].”

• On October 13, 2010, the SEC responded by arguing that the Court could issue the order to show cause on an ex parte basis, pointing out that D&T Shanghai will have “the full protections provided by due process, and will have an opportunity to be heard on the merits of this case.” The SEC also argued that it should not be required to “exhaust all possible means of serving a foreign person, including service through the Hague Convention,” but should be permitted to serve its papers on D&T Shanghai’s U.S. counsel.

• In a January 4, 2012 Opinion and Order discussed here, Magistrate Judge Robinson granted the SEC’s motion for a order to show cause, ruling that “service of the application is not a prerequisite to the issuance of the proposed show cause order.” She directed D&T Shanghai to file responsive papers addressing why it should not be ordered to respond to the Commission’s subpoena.

• As discussed here, in January 2012, D&T Shanghai filed: (1) a motion seeking clarification of the Magistrate Judge’s Order, raising a question of whether the Order was intended to require the SEC to serve D&T Shanghai under the terms of the Hague Convention, or whether the Order was intended to allow service on D&T Shanghai’s counsel by e-mail; and (2) a Motion seeking to establish a revised briefing schedule.

• As discussed here, on February 1, 2012, Magistrate Judge Deborah Robinson issued a Minute Order which reiterated that the SEC can serve its Order to Show Cause on counsel for D&T Shanghai by e-mail.

D&T Shanghai, which is registered with the Public Company Accounting Oversight Board (“PCAOB”), filed its Brief in Response to the Order to Show Cause on April 11, 2012, arguing, among other things, that the China Securities Regulatory Commission (“CSRC”) has prohibited D&T Shanghai from producing the work papers directly to the SEC (insisting that the SEC must work through the CSRC to obtain access to them). D&T Shanghai further argued that Chinese regulators “would be authorized to dissolve the firm entirely and to seek prison sentences up to life in prison for any [D&T Shanghai] partners and employees who participated in the violation,” which represented an undue burden. D&T Shanghai also argued that the securities laws under which the SEC served the subpoena do not allow the Commission to obtain the documents located abroad. The accounting firm also argued that the Commission should be required to serve the subpoena under the Hague Convention (D&T Shanghai also moved to quash the subpoena for the same reason). The SEC will be filing a Reply Brief on May 23, 2012 and the matter is scheduled to be heard by Magistrate Judge Robinson on June 8, 2012.

The Administrative Proceeding filed yesterday begins the process which could result in the punishment of D&T Shanghai for its failure to respond to the subpoena. The SEC claimed that D&T Shanghai violated the Sarbanes-Oxley Act and the Securities Exchange Act of 1934 by failing to provide the SEC with the audit work papers, claiming, among other things that “Section 106(b) of Sarbanes-Oxley directs a foreign public accounting firm that issues an audit report, performs audit work or interim review’ to ‘produce the audit work papers of the foreign public accounting firm and all other documents of the firm related to such audit work’ to the Commission upon request.” The Commission further stated:

it is appropriate that this proceeding be brought … to determine whether D&T Shanghai should be censured or denied the privilege of appearance and practice before the Commission for having willfully violated Section 106 of Sarbanes-Oxley.

D&T Shanghai is required to respond to the SEC’s Order commencing the Administrative Proceeding within twenty days.

Personal Injury Lawyer Los Angeles – FREE CONSULTATION by Personal Injury Attorney Los Angeles – Legal Defenders, Los Angeles Personal Injury Lawyers – Law Offices of Burg and Brock, who have won over $100 million in verdicts and settlements for clients

Page took 3 seconds to load.